Today I spent time learning about a company. Generally, public perception of it is slightly negative. I’ve followed the company for some time, and after my research today I arrived at a different conclusion. I’m bullish on the company. I think it has a good future. I shared this opinion with a few friends, who all pointed to public sentiment. They suggested the crowd is likely right and it’s not a wise investment.

Today reminded me of my early days as a founder: I see something others don’t. When I explain what I see, others dismiss it or disagree. After I start my company and we have meaningful traction, others begin to believe what I’d always believed—that my startup could be something big.

The fact that others don’t see the potential in this company signals to me that it could be an opportunity for an outsize return. These types of opportunities don’t come along often. I’ll continue to research and will likely go with my (educated) instincts and pull the trigger on this investment.

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A friend shared an article with me today. It’s about an institutional investor, ReAlpha, planning to spend $1.5 billion to buy 5,000 homes to rent out. I’ve followed institutional buyers of single-family homes for the last decade. Atlanta is one of the biggest markets for companies like Invitation Homes and American Homes 4 rent, both of which are publicly traded and own tens of thousands of single-family homes across the country that they rent out on a long-term basis. The strategy has worked well as home prices and rental rates have steadily increased since the financial crisis.

The article discussed a slightly different strategy: purchasing thousands of homes to rent out short-term on Airbnb. The idea isn’t new, but it hasn’t been pursued at scale by institutional investors. The customer acquisition strategy is intriguing. Instead of acquiring customers (i.e., renters) through traditional sales and marketing efforts, they plan to acquire them on Airbnb, which is a marketplace.

Marketplaces are places where buyers and sellers connect. Using a marketplace to acquire customers is an attractive and capital-efficient strategy for sellers. The fee (or take rate) is usually a fixed percentage of the revenue a buyer pays. That leads to a highly predictable customer acquisition cost. Sellers pay X cents for every dollar in revenue from buyers. Sellers don’t have to worry about paying to attract potential buyers who never pan out; they pay only to acquire revenue-producing customers. Sellers don’t even need to take on sales or marketing—they need only have the ability to service customers.

This approach has downsides, and the customer relationship is a big one. The marketplace owns the customer relationship. Buyers aren’t loyal to the seller they transact with; they’re loyal to the marketplace. Concentration is also a big risk. If you get all your customers from a single source that you don’t control, changes can significantly affect your revenue. Lots of stories circulate about businesses being crushed when a marketplace they rely on changes how listings are displayed or suspends their account.

If ReAlpha moves forward with these plans, it will be a huge growth opportunity for Airbnb. I’d imagine ReAlpha will seek discounts on Airbnb’s fees, but even so this could unlock a new product offering with the potential for massive scale in Airbnb’s platform.

I’ll be watching to see how this evolves.

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I’ve always been a fan of nice shoes. There’s an old saying: when you look good, you feel good. I think shoes are a big part of that. Shoes have transcended their purpose as foot coverings and become an asset class. And marketplaces like GOAT and StockX have helped illuminate just how much enthusiasts value shoes.

This got me thinking more about alternative asset classes. I’d imagine there are other tangible items that are prime to be turned into an alternative asset class. Their intended purpose at creation was X, but people now place more value on them—to the point that they don’t plan to use them as X. Instead, they’ll prize them for their monetary value or put them on display, or both.

Lots of items have been turned into alternative asset classes already (think art and wine), but I believe there’s a second-wave opportunity. Somebody with vision just needs to recognize a category of items that’s never been thought of as an asset class but that now resonates more with the masses or perhaps with younger generations and that owners value immensely. When they do, they’ll have a big opportunity to help owners legitimize the category as an alternative asset class.

If you’re a founder and passionate about something you own, consider solving this problem for yourself and others. It could be a huge market.

In my twenties, I made an investment that I learned a ton from. It was the very beginning of the financial crisis. I saw an opportunity, made up my mind, and pulled the trigger. A few months later, the world was in free fall. The value of my investment plummeted, and my startup was struggling to get customers. It felt like nothing was going right for me (or anyone else). I recently reflected on that time with a close friend:

• Experience – I didn’t have experience with the type of investment I was making. In hindsight, I wish I’d connected with someone more seasoned in the space so I could have factored their wisdom into my decision-making. My lack of experience handicapped my decision-making and execution.
• Timing – The impact of timing can’t be underestimated. It’s not something one can usually control, but it can have an outsize impact on returns. In this situation, I was too early.
• Conviction – I didn’t have strong conviction about the investment I was making, so when things began to go differently than I had anticipated, I was ready to sell. I sold way too early for a small profit. Had I held on, my profit would have been huge. If I don’t have a strong conviction about something, I shouldn’t invest in it. Conviction is key to weathering the ups and downs of the journey.
• Horizon – I didn’t have much of an idea how long I planned to hold the investment. That and lack of conviction resulted in a premature sale. I now try to think about how long something might take to reach its full potential and use that as my time horizon.

In the end, this investment turned out fine and I learned a ton from it. I’m glad I did it. Because of it, I gained valuable knowledge that’s been useful over the years.

A close friend in real estate recently shared what he’s seeing: record low home inventory and rapidly increasing prices. Many factors that I won’t get into are contributing to this. He asked me what I’m seeing with early-stage startups. I told him valuations (prices) are increasing, many new companies are being formed, and there’s lots of investment capital. Again, lots of contributing factors.

The pandemic is still causing a great deal of pain. At the same time, multiple asset classes (real estate, stock market, etc.) are experiencing record highs. We had a lengthy discussion and came to a conclusion. We have no idea what direction everything is going in, but we’re probably witnessing a historic time in our economy and the opportunity of a lifetime (for some).

I’m curious to see where things go and will be watching closely. I won’t get the chance to observe historic change every year.

Tonight, I tuned in to a great conversation that various diverse investors on a panel were having. One of them said this about early founders: “There is funding for what you want to do, but you have to convince people that it’s worth the investment given the lack of data points.” This was a great point and I totally agree.

When a business has traction, it starts to be derisked from an investment perspective. A growing customer base and revenue are metrics that can indicate the business’s trajectory and help investors gain confidence. When the business is at an early stage, those data points just don’t exist. And in that situation, it’s the founder’s responsibility to articulate their vision in a way that investors can easily grasp and that excites them. When early founders can do that, they’re more likely to convince someone to invest!

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I recently told a close friend about a personal investment I made. We’ve always had a shared interest in the area. It’s not the type of investment I’ve made in the past, so he was curious. Why do I think it’s a good investment? he asked. What were my thought processes leading up to the decision to invest? How did I get comfortable with an investment far outside my comfort zone? Here are a few things I told him:

• Close-to-unique opportunity – In 2020, I told myself that I want to take advantage of a certain kind of opportunity. I listed my criteria and have been looking for matches. I felt this investment is one of those opportunities, which don’t come around regularly.
• Confidence – I wasn’t 100% confident before pulling the trigger. I asked myself if this opportunity met my criteria. It did. Even so, I was still only 70% confident. Most investments carry risk, so I’ll never be 100% comfortable and I’m OK with that (for now).
• Upside – As with lots of investments, this one could drop to zero. If it does, I’ll lose what I invested—nothing more. On the other hand, I knew there’s a big upside potential—if I didn’t invest, the gains I would lose out on could be enormous. I’m focusing on the upside, not the downside.
• Calculated risk – I didn’t bet the farm—only an amount I can bear to lose.
• Learning – Regardless of the outcome, I’ll learn more having made the investment than I would have watching from the sidelines. I guess I could look at it as an expensive education if things go wrong. I’m OK with that too. It could help set me up for a great investment in the future or avoid a disastrous one.

I’m glad my friend quizzed me about this investment. Explaining it to him highlighted some things I hadn’t thought about. I hope this turns out well!

Outlander puts on a monthly speaker series called the Outlandish Speaker Series. Today, the speaker was Lo Toney, founding partner of Plexo Capital. Plexo is a unique fund that makes direct investments in start-ups and in emerging venture capital funds. Lo incubated Plexo while working for GV (the venture capital investment arm of Google’s parent company). The strategy was to increase early-stage deal flow through diversity in people. The strategy proved successful, and he later spun out Plexo into a stand-alone firm (GV is an investor in Plexo). You can read more about Lo’s strategy here.

Today’s session was super insightful. Lo did a great job of articulating his thoughts on what he looks for when making investments in companies. He did an even better job of sharing what he looks for when considering an investment in a fund and how being a fund manager is different from being a great investor. Lo’s wealth of experience as a CEO, investor, and fund manager was evident.

I’m excited about what Plexo is doing and look forward to tracking its success and the success of the fund managers it invests in.

Today Salesforce announced the acquisition of Slack for $27.7 billion. The deal was leaked last week, but now Salesforce has officially confirmed it, along with the deal price. The sale is for cash and Salesforce stock. The is the biggest acquisition to date by Salesforce and a huge win for Slack employees and investors. A few quick thoughts on this deal:

• Hot market – There’s been lots of M&A activity in tech over the last few months. I’ve noticed it at a local level with private tech companies at various stages. This deal is at an enterprise level and involves two publicly traded companies.
• Majority cash – Notably, Slack is getting a considerable percentage of the purchase price in cash. It will receive stock too, but more cash.
• Growth strategy – Salesforce has acquired a number of companies over the years, including Tableau for over $15 billion last year and Mulesoft for over $6 billion in 2019. Growth through acquisition is a serious part of its strategy.
• Integration – I’m curious about how Salesforce will digest and integrate such a big deal. It clearly has experience integrating companies it acquires.
• Valuation – Slack didn’t benefit from the pandemic as much as some other publicly traded tech companies that facilitated working from home, such as Zoom. From a valuation perspective, Slack may have seemed less expensive in the current landscape.
• Public – Slack went public in the summer of 2019 and had a valuation of $24 billion after the first day of trading on the stock market. Today’s deal price is 15% higher. Slack was a public company for about a year and a half before this deal was announced.

I’m very familiar with both companies. I used Salesforce heavily in the past and currently use Slack every day to communicate. This is a huge deal, and it will be interesting to see if other big tech players announce acquisitions of their own.

Today I had a good chat with a friend about valuations of tech companies. A lot of capital has been raised in Atlanta and the Southeast over the last six months. I’ve read about acquisitions, venture capital rounds, and private equity recapitalizations. Our conversation began with private companies and moved to public companies. Both have seen valuations increase rapidly this year.

One of the points I made was the difference between private and public liquidity. Public company stock shares tend to be very liquid. They can be bought and sold in a matter of minutes. The liquid nature of the stock market means that market capitalization (i.e., valuation) of a company is always—for the most part—known and agreed to by a large pool of people (i.e., the market). The market cap reflects all known information about a company and the macro environment at any given time. A large pool of people reach consensus every day.

Private company ownership usually isn’t as liquid. Most owners can’t decide to sell private company shares and complete the transaction in the next few minutes. It’s more of a process. Parties interested in ownership in the company usually take time to become familiar with the business’s performance and other factors they deem important. Then they agree on a valuation with the owner and a transaction is completed. The business’s performance or the macro environment could change after the transaction, but the valuation of the company is usually pegged at the most recent transaction. And the valuation is usually agreed to by a small number of people.

I don’t have an opinion on the current state of tech valuations. I do think that the difference in the liquidity of private and public tech companies affects their valuations. I view one is a snapshot in time and the other as a daily consensus that incorporates the latest information.

There are lots of other differences between private and public tech companies that I won’t get into. I’m curious to see how valuations of both trend, and I’ll be watching them closely.